China’s Consumers Drive Rebound in Economic Activity

The data signal fresh green shoots in China’s economy, which grew at one of its slowest rates in decades in 2022 as stringent pandemic restrictions upended supply chains, all but halted travel and battered consumer confidence. But in mid-November, Beijing said its main priority would be to revive growth, focusing on consumer spending in particular. Days later, China began to dismantle Covid-19 restrictions, reopening its borders in time for the weeklong Lunar New Year holiday that ended Friday.

Online booking for overseas trips surged. Domestic-tourism revenue also jumped during the period—the first Lunar New Year free of travel restrictions since Covid-19 emerged— recovering to 73% of the prepandemic level from 35% last year. Journeys by rail were at 83% of 2019’s level.

Sales at surveyed catering businesses rose almost 25% from a year earlier, exceeding those from 2019’s holiday, an industry survey showed. Consumers also flocked to cinemas, and sent box-office revenue to its second highest on record for a Lunar New Year holiday.

A rapid consumption-led recovery of China’s economy, if sustained, would help buttress global demand for goods and services.

The International Monetary Fund this week raised its forecast for 2023 global economic growth, saying China’s recent reopening had paved the way for a faster-than-expected recovery, and citing resilient demand in the U.S. and Europe and an easing of the energy crisis.

The IMF now forecasts the global economy to grow 2.9% this year, from October’s projection of 2.7%. China’s economy is predicted to expand 5.2% in 2023, against the previous forecast of 4.4%.

A measure of activity in China’s services sector rebounded in January to 54.0 from 39.4 in December, the statistics bureau said. The gauge moved above 50—the level separating contraction from expansion—for the first time in five months. The broader nonmanufacturing purchasing managers index, which also measures construction activity, rose to 54.4, from 41.6 in December, its highest since June.

The strong data showed “an improvement in confidence as people recovered from Covid and new infections waned,”

Sheana Yue,

China economist from Capital Economics, wrote in a note Tuesday. Construction activity was boosted by the easing of labor shortages and fresh policy support for indebted property developers, she said.

Meanwhile, the purchasing managers index of activity in manufacturing rose to 50.1 in January from 47.0 in December, ending three months of contraction but missing the 50.4 average prediction of economists polled by The Wall Street Journal. Subindexes of factory production and new export orders remained in contraction territory.

Looking ahead, economists say that even though Covid-19 appears to be waning, risks remain and the depth and duration of China’s recovery face challenges across many fronts.

Despite official claims earlier this month that 80% of the population has already been infected with Covid-19, some public-health experts have adopted a more cautious tone and warned about future waves of infections.

Exports of goods, a pillar of growth throughout the pandemic, are expected to expand much more slowly this year as demand in the West peters out.

Iris Pang,

an economist with ING Bank, said consumption likely won’t recover to prepandemic growth rates until the third quarter of this year.

A still fragile labor market, in particular among young workers, and the continuing property slump could deter many from spending more freely.

“On the downside, China’s recovery could stall, with spillovers to the rest of the world,” said

Pierre-Olivier Gourinchas,

IMF’s chief economist, adding that other risks include an escalation of the war in Ukraine as well as volatility in the financial markets due to rising interest rates.

—Grace Zhu contributed to this article.

Write to Stella Yifan Xie at [email protected]

The data signal fresh green shoots in China’s economy, which grew at one of its slowest rates in decades in 2022 as stringent pandemic restrictions upended supply chains, all but halted travel and battered consumer confidence. But in mid-November, Beijing said its main priority would be to revive growth, focusing on consumer spending in particular. Days later, China began to dismantle Covid-19 restrictions, reopening its borders in time for the weeklong Lunar New Year holiday that ended Friday.

Online booking for overseas trips surged. Domestic-tourism revenue also jumped during the period—the first Lunar New Year free of travel restrictions since Covid-19 emerged— recovering to 73% of the prepandemic level from 35% last year. Journeys by rail were at 83% of 2019’s level.

Sales at surveyed catering businesses rose almost 25% from a year earlier, exceeding those from 2019’s holiday, an industry survey showed. Consumers also flocked to cinemas, and sent box-office revenue to its second highest on record for a Lunar New Year holiday.

A rapid consumption-led recovery of China’s economy, if sustained, would help buttress global demand for goods and services.

The International Monetary Fund this week raised its forecast for 2023 global economic growth, saying China’s recent reopening had paved the way for a faster-than-expected recovery, and citing resilient demand in the U.S. and Europe and an easing of the energy crisis.

The IMF now forecasts the global economy to grow 2.9% this year, from October’s projection of 2.7%. China’s economy is predicted to expand 5.2% in 2023, against the previous forecast of 4.4%.

A measure of activity in China’s services sector rebounded in January to 54.0 from 39.4 in December, the statistics bureau said. The gauge moved above 50—the level separating contraction from expansion—for the first time in five months. The broader nonmanufacturing purchasing managers index, which also measures construction activity, rose to 54.4, from 41.6 in December, its highest since June.

The strong data showed “an improvement in confidence as people recovered from Covid and new infections waned,”

Sheana Yue,

China economist from Capital Economics, wrote in a note Tuesday. Construction activity was boosted by the easing of labor shortages and fresh policy support for indebted property developers, she said.

Meanwhile, the purchasing managers index of activity in manufacturing rose to 50.1 in January from 47.0 in December, ending three months of contraction but missing the 50.4 average prediction of economists polled by The Wall Street Journal. Subindexes of factory production and new export orders remained in contraction territory.

Looking ahead, economists say that even though Covid-19 appears to be waning, risks remain and the depth and duration of China’s recovery face challenges across many fronts.

Despite official claims earlier this month that 80% of the population has already been infected with Covid-19, some public-health experts have adopted a more cautious tone and warned about future waves of infections.

Exports of goods, a pillar of growth throughout the pandemic, are expected to expand much more slowly this year as demand in the West peters out.

Iris Pang,

an economist with ING Bank, said consumption likely won’t recover to prepandemic growth rates until the third quarter of this year.

A still fragile labor market, in particular among young workers, and the continuing property slump could deter many from spending more freely.

“On the downside, China’s recovery could stall, with spillovers to the rest of the world,” said

Pierre-Olivier Gourinchas,

IMF’s chief economist, adding that other risks include an escalation of the war in Ukraine as well as volatility in the financial markets due to rising interest rates.

—Grace Zhu contributed to this article.

Write to Stella Yifan Xie at [email protected]